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EXPLAINED | The concerns raised by some state FMs at the last GST Council meeting

Some of the opposition Finance Ministers publicly spoke about not being heard at the GST Council meeting, prominent among them being Punjab Finance Minister Manpreet Singh Badal and West Bengal Finance Minister Amit Mitra.

June 14, 2021 / 07:47 PM IST
Amit Mitra

Amit Mitra

On June 12, the Goods and Service Tax Council met for its 44th sitting and decided to cut GST rates on a number of key Covid-19 essential items. These include essential medicines like Remdesivir and Tocilizumab, medical grade oxygen, oxygen generator, ventilators, masks, COVID testing kits, oximeters, hand sanitisers, cremation furnaces, ambulances, temperature checking devices and others.

These cuts are applicable till September 30. The cuts were recommended by a Group of Ministers (GoM), which was formed after the last GST Council meeting on May 28 to deliberate on possible reductions in COVID-related items. Finance Minister Nirmala Sitharaman said in a media briefing after the meeting that almost all recommendations of the GST Council had been accepted.

In theory, this should have been a meeting that should have gone more smoothly than previous ones, the ones which had included the contentious topic of compensation to states. After all, reducing the GST burden on essential Covid supplies was a demand across party lines.

However, soon after the meeting, some of the opposition Finance Ministers publicly spoke about not being heard at the GST Council meeting, prominent among them being Punjab Finance Minister Manpreet Singh Badal and West Bengal Finance Minister Amit Mitra. It is learnt that the Finance Ministers of Delhi and Chhattisgarh also spoke at the council meeting about how opposition views are not being heard.

What did the opposition leaders say?

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In a series of tweets after the meeting, Badal accused the GST Council’s Covid GoM of acting like a ‘shahenshah’. He said that essential GST products should be completely zero-rated.

“How would a consumer feel seeing GST reflected on an invoice on Covid-19 treatment? Stop collecting revenues on furnaces for crematoriums. Stop taxing RT-PCR machines. They are already purchased at concessional rate, and practically all states also regulate the price of the Covid-19 test. GST on Covid-19 preventive materials, & Masks, PPEs, hand sanitizers, medical grade oxygen, testing kits, ventilators and pulse oximeters is insensitive,” Badal said.

Badal also termed it ‘preposterous’ that no Finance Minister from a Congress-ruled state was part of the GoM.

“Operationalise the position of Vice-Chairperson of the GST Council. Council must have its own secretariat, and Dispute Resolution Mechanism,” Badal said.

West Bengal’s Amit Mitra, meanwhile, said that the happenings in the Council were ‘unprecedented’ and leading to a ‘Slow death of the only body of cooperative federalism.’

Mitra also said that keeping any sort of tax on Covid essential items was ‘anti-people’. “Since my voice ignored, I have recorded my dissent by letter,” he said.

The issue of exemption and zero rating

Exempting items from GST and zero-rating them are two different matters. When exempting a particular item, but not the raw materials and services used in its production, leads to manufacturers unable to avail input tax credit.

The was articulated by Sitharaman last month, when she said that exempting domestically produced and commercially imported items from GST will lead to manufacturers unable to avail of input tax credit, which in turn could lead to higher prices for customers.

Zero-rating, on the other hand, means that the entire value chain of the supply is exempt from tax, not only the final product, hence eliminating the issue of input tax credit. This proposal was first mooted by Bharatiya Janata Party’s Rajya Sabha member and former Bihar Deputy Chief Minister Sushil Kumar Modi late last month, and was backed by various GST experts.

A top government official categorically told Moneycontrol that the GoM had not suggested zero-rating. “Only rate cuts were suggested by the GoM, and that was the agenda of the last meeting,” the person said.

The Composition of GoM and pending reforms

While the GoM on GST of Covid items does not contain any Finance Minister from Congress states, it does have opposition FMs.

The GoM includes Meghalaya Chief Minister Conrad Sangma, Gujarat Deputy Chief Minister Nitin Patel, Maharashtra Deputy Chief Minister Ajit Pawar, Goa Transport Minister Mauvin Godinho, Kerala Finance Minister KN Balagopal, Odisha Finance Minister Niranjan Pujari, Telangana Finance Minister T Harish Rao, and Uttar Pradesh Finance Minister Suresh Khanna.

Sitharaman was asked about this in the media briefing on June 12. "As much as I can say with confidence, the selection in GoM is not made on party basis neither is the exclusion. There are several GoMs and several ministers are made members of one or the other," she said.

This statement is true. The GST Council forms many committees and group of ministers from time to time, and representatives of all parties and state governments have found place in them.

However, the issue of other GST reforms raise by Badal are not new, and the centre has not been able to allay the concerns of the states. Badal said that the position of Vice-Chairperson of the GST Council should be operationalized, the council must have its own secretariat, and Dispute Resolution Mechanism.

Similar issues were raised by Tamil Nadu Finance Minister Palanivel Thiagarajan at the GST Council meeting on May 28, when he said that GST needs a 'profound, root and branch reform', without which the very future of the tax regime will be at grave risk.
Arup Roychoudhury

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